Merchanting and Current Account Balances
AbstractMerchanting is goods trade that does not cross the border of the firm's country of residence. Merchanting grew strongly in the last decade in several small open economies, particularly in Finland, Ireland, Sweden, and Switzerland, and has become an important driver of these countries' current account. Because merchanting firms reinvest their earnings abroad to expand their international activities, this practice raises national savings in the home country without increasing domestic investment. This results in a significantly large current account surplus. To show the empirical links between merchanting and the current account balance, two exercises are performed in this paper using a sample of 53 countries during 1980-2011. The first exercise estimates the savings impact of merchanting countries in empirical models of the medium-term current account and shows that the presence of merchanting activity in a country indeed increases its current account balance by 3% on average. The second exercise shows that merchanting's impact on the country's current account is sensitive to firm mobility.
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Bibliographic InfoPaper provided by Swiss National Bank in its series Working Papers with number 2013-06.
Length: 43 pages
Date of creation: 2013
Date of revision:
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More information through EDIRC
Merchanting; industry dynamics; current account adjustment;
Other versions of this item:
- Elisabeth Beusch & Barbara Döbeli & Andreas M. Fischer & Pinar Yesin, 2013. "Merchanting and current account balances," Globalization and Monetary Policy Institute Working Paper, Federal Reserve Bank of Dallas 140, Federal Reserve Bank of Dallas.
- F10 - International Economics - - Trade - - - General
- F20 - International Economics - - International Factor Movements and International Business - - - General
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-24 (All new papers)
- NEP-EEC-2013-06-24 (European Economics)
- NEP-OPM-2013-06-24 (Open Economy Macroeconomics)
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